The Indian Income Tax Act, has elaborate provisions not only for levy and collection of taxes but also for imposition of penalty when a taxpayer ignores or violates the rules. But penalties cannot be open-ended indefinitely. This is where Section 275 of the Income Tax Act comes in.
This section puts limitation for the penalty proceedings. It avoids ongoing litigation & provides certainty for taxpayers, as well as to the department. It is a Legal Time-Bar — nothing more, nothing less than a statutory time-bar beyond which penalties may not be enforced.
What is Section 275 in Income Tax Act?
Section 275: It’s all about timeliness for a penalty. The law acknowledges the existence of penalties as tools for disciplining & ensuring compliance, but they cannot be left hanging indefinitely.
(c) It is specifically declared that no order of the kind referred to in clauses (b) and more particularly those which hereinafter follow, ordering imposition or enhancement or reduction or cancellation of penalty shall be passed:
From and after the expiration of the time specified in this section."
If the order gets delayed beyond limitation bar, it is invalid.
Therefore Section 275 of the Act has to be read as having several timelines for imposition of penalty depending upon the facts & stage of litigation at appellate level.
Key Provisions of Section 275
When appeal is filed
In case the matter of an order of assessment is pending in appeal before CIT(A) or ITAT, penalty itself must be imposed:
- Within the financial year of receipt of the appeal order, OR
- Within one year from the end of the financial year on which appellate order is received,
Whichever is later.
This assures that the sanction reflects the final appellate ruling.
Also Read: Penalty for Under-Reporting and Misreporting of Income
When no appeal is filed
If the assessment order is not appealed against, a penalty order has to be passed:
- Six months from the last day of the month in which penalty proceedings were commenced.
Therefore it shall be imperative to both the DRP/Department & also to a taxpayer that no undue delay occurs when there is no further appeal pending!
When revision proceedings are involved
In case an order is modified in appeals under Section 263 or similar, penalty must be imposed:
- Within a period of six months from the last day of the month in which the order under revision is made.
This makes the penalty consistent with revisional proceedings.
Why is Section 275 Important?
- Eliminates uncertainty – In the absence of a time limit, taxpayers might perpetually worry whether they will face penalties.
- Safeguard for natural justice – Law should be clear, precise & time-bound.
- Efficient department – Statutory time is there to conclude penalty proceedings.
- Lowers litigation burden – Courts are not clogged with endless litigation because limitation periods are fixed.
Also Read: Penalty for Concealment or Misreporting
Example for Better Understanding
Example: Let’s say the assessment order is passed on 10th Dec. 2023, and the taxpayer failed to file an appeal. The penalty notice was issued on 20th Jan. 2024.
Since Section 275(1)(c) provides that the penalty order must be passed within six months of January 31, 2024 (i.e. on or before July 31, 2024), it is found that delivery of the penalty order on August 5 would render such an order time-barred."
This illustrates how commencement of action for imposing penalty & limitation period tread together.
Section 275(1A) – Order of Appellate Authority
Section 275(1A) provides that if on disposal of the appeal by an appellate authority, the assessment made is varied in consequence of or to give effect to the appellate order, no penalty would be levied provided an order giving effect to it was made.
If the appellate order causes a penalty to be required, the officer shall issue or amend penalty proceedings within six months of the end of the month in which such appellate order is received.
Section 275A & 275B – Other Provisions
While Section 275 relates to the limitation of penalty orders, other provisions like Section 275A & Section 275B prescribe a levy of penalties for breach of specified conditions, such as non-compliance with the direction issued at the time of a seizure/search.
These provisions combine to make up a complete penalty structure under the Income Tax Act.
Case Laws on Section 275
- CIT vs Mohair Investment & Trading Co P Ltd – Delhi High Court held that penalty proceedings cannot go on indefinitely & must adhere to Section 275 timelines.
- Raja Textiles vs Union of India – Penalty orders passed beyond limitation were declared invalid.
- CIT vs Jitendra Singh Rathore – Rajasthan High Court held that limitation applies even in cases of administrative delay.
These cases emphasize that the bar of limitation for penalty proceedings is sacrosanct.
Also Read: Interest Penalty for Late Filing of ITR
Section 275 and Research Deductions
Interestingly, while penalties are subject to time limits, the Income Tax Act also includes deductions for scientific research expenses.
This allows deduction for expenditure incurred on scientific research & development, including capital expenditure."
So the law is a mix of stick (penalty limits) and carrot (research deductions) — a testament to India’s progressive tax system.
Other Connected Sections
- Section 86 – Avoiding double taxation in case of partnership firms.
- Section 10(46A) – Exemptions to certain bodies/authorities.
- 15H – Power to make rules in respect of income by way of interest.
- Sukanya Samriddhi Yojana Income Tax Section – Offers tax rebates for investments made in this scheme.
All of these, read with Section 275, indicate how the Act is connected to compliance, benefit & relief.
Practical Implications for Taxpayers
- Always track penalty initiation dates.
- Any penalty order passed beyond the statutory limitation period can be challenged.
- Utilize appellate remedies efficiently as they directly impact penalty deadlines.
- Keep documentary evidence ready – appellate & revisional orders play a big role in calculating deadlines.
Also Read: Penalty for Failure to Get Accounts Audited
Conclusion
The provision is that Sec. 275A cannot be given effect to so as to take away discretion of the AO for initiating penalty proceedings, and it will come after a period of limitation prescribed under the Act.
Put more plainly, it ensures discipline & fairness in the penalty system. For taxpayers, understanding these time frames can make the difference between paying a tax & escaping an improper penalty.
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